"There are potential benefits here; there are also potential risks, particularly of a currency that could potentially have large application," Powell said.

Facebook founder and CEO Mark Zuckerberg arrives to testify following a break during a Senate Commerce, Science and Transportation Committee and Senate Judiciary Committee joint hearing about Facebook on Capitol Hill in Washington, DC.

Libra is a digital currency, also known as a cryptocurrency, that is intended to transform how money moves around the world. Facebook announced on Monday that it is leading a group of payments and technology companies – including Visa, MasterCard, PayPal, eBay, Lyft and Uber – to create Libra, set to launch in the first half of next year.

Powell noted that the Fed meets "with a broad range of financial sector firms all the time on financial technology."

"There's just a tremendous amount of innovation going on out there," Powell said.

"There are potential benefits here; there are also potential risks, particularly of a currency that could potentially have large application," Powell said. "We will wind up having quite high expectations from a safety and soundness and regulatory standpoint if they do decide to move forward with something."

Powell noted that the Fed does not have "plenary authority" over cryptocurrencies like Libra. Instead, Powell said the central bank instead may have influence over the widespread adoption of cryptocurrency "through international forums" because the Fed has "significant input into the payment system."